Microeconomics Exam 3

If goverment spending increase by $100 and the MPC is 0.9, how much will GDP increase? $1,000 $500 $100 $250

$1,000

Suppose that investment increases by $200 billion and that the marginal propensity to consume equals 0.80. The equilibrium level of real GDP will increase by A. $40 billion B. $ 160 billion C. $250 billion D. $1,000 billion

$1,000 billion

When the MPC is .75 a decrease in net taxes of $100 billion will increase the equilibrium level of real GDP by A. $75 billion B. $100 billion C. $300 billion D. $400 billion

$300 billion

If the marginal propensity to consume is 0.8, by how much will GDP increase after government spending increases by $200? $1,000 $200 $40 $160

$40

If the multiplier is 4, a $10 billion increase in autonomous government spending will cause a: A.$10 billion increase in equilibrium investment B.$40 billion increase in equilibrium investment C.$40 billion increase in equilibrium real GDP D.$400 billion increase in equilibrium real GDP

$40 billion increase in equilibrium real GDP

If consumption rises from $500 billion to $575 billion and income rises from $600 billion to $700 billion, the marginal propensity to save is 0.25. 0.2. 0.75. 1.17.

0.25.

If income rises from $3,000 per month to $3,500 per month and consumption increases from $2,800 per month to $3,200 per month, what is the marginal propensity to consume? A. 1.09 B. 0.8 C. 1.25 D. 0.91

0.8

If the marginal propensity to consume is 4/5, the simple multiplier is A. 1/6 B. 6 C. 6/5 D. 5

5

Which statement best identifies the multiplier effect in the macroeconomy? A. As savings accounts earn interest, they experience the multiplier effect. B. A change in aggregate expenditure can affect Real GDP by more than the amount of the change. C. The multiplier effect shows the impact of an inflationary or recessionary gap. D. The effect describes how interest rates multiply the amount of a loan.

A change in aggregate expenditure can affect Real GDP by more than the amount of the change.

an increase in the rate of interest, other things equal, would A. have no effect on investment B. increase the amount invested since the rate of return would be lower C. increase the amount invested because income would rise D. Reduce the amount invested because the opportunity costs of investing would be higher.

D. Reduce the amount invested because the opportunity costs of investing would be higher.

Which of the following items is NOT a determinant of aggregate demand? A. consumption B. investment C. government saving D. government spending

Government saving

Which of the following might be considered the most expansionary set of fiscal policies? A.Increase in government purchases, increase in taxes and decrease in transfer payments B.decrease in government purchases, increase in taxes and decrease in transfer payments C.Increase in government purchases, decrease in taxes and increase in transfer payments D.decrease in government purchases, decrease in taxes and decrease in transfer payments

Increase in government purchases, decrease in taxes, and increase in transfer payments

Supply-side fiscal policies include all of the following EXCEPT: A. investment In human capital B. projects that include the encouragement of new technologies C. increasing transfer payments D. policies that encourage investment in research and development

Increasing transfer payments

_____ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy. Reducing; increasing; lowering Increasing; increasing; lowering Reducing; increasing; raising Increasing; reducing; raising

Increasing; increasing; lowering

All of the following are tools of fiscal policy except A. taxes B. interest rates C. government purchases of goods D. government purchases of services

Interest rates

High taxes and/or heavy regulation: A. can cause firms to boose production so they can cover the added costs B. raise cots of production so that the aggregate supply curve shifts to the left. C. are not likely to affect firms behavior, since they are more concerned about profit than taxes or regulation D. are likely to shift aggregate supply to the right

Raise cots of production so that the aggregate supply curve shifts to the left.

Increased consumer confidence will shift the aggregate curve to the ____ and _______ output demanded. A. left, decrease B. left, increase C. right, increase D. right, decrease

Right, Increase

An increase in the value f the U.S dollar relative to other currencies will. A. Shift the autonomous net export function upward B. Shift the autonomous net export function downward C. Cause a rightward movement along the autonomous net export function D. Cause a leftward movement along the autonomous net export function

Shift the autonomous net export function downward

Fiscal policy that focuses on shifting the long-run aggregate supply curve to the right is: A. aggregate shifts policy B. contradictory policy C. supply-side fiscal policy D. consumption policy

Supply-side fiscal policy

A grocery store manager must decide whether to buy four rug cleaners to rent to customers. The manager estimates that the first would yield $200 a year, the second $150, the third $75, and the fourth $20. If the interest rate is 12 percent and each rug cleaner costs $500, how many should the manager buy? A. none B. one C. two D. three

Three

The long-run supply curve is: A. vertical B. horizontal C. elastic D. inelastic

Vertical

Which of these will NOT cause a shift in the short-run aggregate supply curve? A.changes in input prices B.changes in inflationary expectations C.changes in productivity D.changes in the aggregate price level

changes in the aggregate price level

Contractionary fiscal policy is typically used to restore the balance of payments. combat a recession due to deficient demand. balance the federal budget. combat inflation stemming from an overheated economy.

combat inflation stemming from an overheated economy.

If the interest rate increases, investment will A. increase. B. be affected. C. fall to zero. D. decrease.

decrease.

Contractionary fiscal policy increases aggregate demand. increases aggregate supply. decreases aggregate demand. leaves aggregate demand unchanged.

decreases aggregate demand.

Assume that initially G is $100 and equilibrium real GDP demanded is $1000. If the multiplier is 4 and G increases to $200, real GDP demanded will increase A. by $100 B. by $2000 C. to $1400 D. to $2000

to $1,400

A stronger dollar will shift the U.S aggregate demand curve to the _____ and ______ output demand. A. left, decrease B. left, increase C. right, increase D. right, decrease

Left, Decrease

If a household income rises from $16,000 to $16,700 and its consumption spending rises from $15,800 to $16,400, then its A. marginal propensity to consume is 0.86 B. Marginal propensity to consume is 0.99 C. Marginal propensity to save is 0.01 D. Marginal propensity to save is 0.98

Marginal propensity to consume is 0.86

The largest component of aggregate expenditures is A.government spending. B.investment spending. C.consumption spending. D.saving.

consumption spending.

Assume net taxes increase by $200 and the marginal propensity to consume is 0.75. Equilibrium income would be likely to rise by $800. by $800. remain the same. fall by $600.

fall by $600.

When household debt levels rise A. the ability to earn more credit rises. B. investment levels rise. C. tax payments are higher. D. families are less able to spend in the current period.

families are less able to spend in the current period.

Aggregate supply shifts to the left when A.there is a decrease in regulations. B.subsidies are higher. C.input prices rise. D.inflation expectations are lower.

input prices rise.

Which factor will cause the aggregate demand curve to shift to the right? A.reduction in the aggregate price level B.increase in interest rates C.reduction in personal income taxes D.decrease in foreign income

reduction in personal income taxes

If the government raises taxes, what will this do to the AD curve? not shift shift left shift right shift but in a random direction

shift left

An increase in consumer confidence in a country will result in a A.shift of the aggregate demand curve to the right. B.shift of the aggregate demand curve to the left. C.movement down the aggregate demand curve to higher aggregate output. D.movement up the aggregate demand curve to lower aggregate output.

shift of the aggregate demand curve to the right.

An increase in wealth will A. shift the consumption function upward B. make the consumption function steeper C. cause a movement upward along with the consumption function D. make the consumption function fatter

shift the consumption function upward